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Staffing Agencies Beware: You Might Owe Prevailing Wages to Workers Assigned to Perform Non-Construction Related Work for Certain Governmental Districts

By Guillermo M. Tello, Yesi Lagunas / Apr 06, 2021

The California Supreme Court has effectively expanded the scope of “public works” with its recent ruling in Kaanaana v. Barrett Business Services, Inc. In doing so, workers previously not thought to be subject to California’s prevailing wage laws may be owed prevailing wages for work performed for certain governmental districts. 

In Kaanaana, the Defendant, a staffing agency, contracted with a sanitation District to provide belt sorters to staff two facilities. Specifically, the Plaintiffs were tasked with sorting the refuse on a conveyor belt to remove recyclables and process the rest. The Plaintiffs, like all other workers of the staffing agency, were not paid prevailing wages for this work – presumably because prevailing wages are generally thought to be required only for construction and construction-related work on public projects. The Plaintiffs sued Defendant for failure to:

  1. Pay minimum and/or prevailing wages;
  2. Pay overtime at prevailing wage rates;
  3. Provide meal periods;
  4. Timely pay all wages owed at the time of termination;
  5. For unfair business practices. 

In the trial court, Defendant successfully moved to strike the Plaintiffs’ prevailing wage allegations on the basis that the District did not fall within the definition of a covered district under Labor Code, section 1720(a)(2) and that the work performed also was not the type of work covered by section 1720(a)(2). Plaintiff appealed the trial court’s ruling. On appeal, the Court of Appeal reversed the trial court and held that the Plaintiffs’ labor qualified as “public works” under section 1720(a)(2), which entitled them to prevailing wages.

Defendant petitioned and the California Supreme Court granted writ of certiorari to decide the matter. The Court was asked to determine whether the work performed by staffing agency workers when assigned to a county sanitation district to perform work entirely unrelated to construction, constitutes “work” under Labor Code section 1720(a)(2), which reads as follows:

“(a) As used in this chapter, ‘public works’ means:

. . .

(2) Work done for irrigation, utility, reclamation, and improvement districts, and other districts of this type.  “Public work” does not include the operation of irrigation or drainage system of any irrigation or reclamation district, except as used in Section 1778 relating to retaining wages.”

The Court unanimously held that the staffing agency workers’ labor qualified as public works and entitled them to payment of prevailing wages under section 1720(a)(2).

In rendering its decision, the Court went into great depth about the history of the term “public works,” noting that since its enactment in 1931, its definition has been evolving to adjust to the times. In reviewing this history, the Court acknowledged that the initial application of prevailing wages was limited to construction work only. To that end, Defendant made four unsuccessful arguments. The essence of each argument is that public works is limited to labor that involves “construction” or construction-related work, such as “alteration, demolition, installation, or repair.” In this context, Defendants argued that the Plaintiffs’ labor did not amount to “work.”

Defendant argued that: 

  1. The construction and installation provision of section 1720(a)(1) modifies the covered district provision of section 1720(a)(2) to limit its application to labor performed for construction-type work;
  2. The seven other definitions of “public works” in section 1720(a) relate to construction or infrastructure, thus section 1720(a)(2) should be similarly limited in scope;
  3. Statutes outside the Labor Code show “public works” is commonly understood as being limited to construction work that is to be owned by and used for the public’s benefit;
  4. No logical reason exists for why the Legislature would have broadened the range of activities covered by prevailing wages when performed for districts covered under section 1720(a)(2) as opposed to other non-covered government districts. 

The Court rejected all of Defendant’s arguments. 

The Court explained that section 1720(a)(2) defines public works in terms of the governmental district for which the work is done, not in terms of tasks as defined by section 1720(a)(1). Accordingly, the legislature must have intended to include a wide range of activity other than construction type of activities evidenced by the use of “work” and not a list of tasks in section 1720(b)(2). The Court further noted that other provisions of Section 1720(a), which it reasoned amounted to seven separate definitions of “public works” contained limiting language, but 1720(a)(2) did not. Moreover, the Court noted that the plain language of section 1720(a)(2) when read in context indicates that its scope is not limited to construction type of activities and maintains the purpose of prevailing wage laws: to protect those who work under contract from substandard wages, benefits the public, and the higher wages make up for the lack of job security and benefits generally associated with public employment.

The Court went on to describe section 1720(a) as a “scattershot series of subjects,” and not as a list of unified types of work. The Court further stated that contrary to Defendant’s arguments, the seven other different definitions of “public works” supported a finding that section 1720(a)(2) is not limited to construction or infrastructure type work. Instead, the separate definitions serve to support a finding that the Legislature could have, but opted not to, confine the range of activities that qualify as public works. 

The Court was also unpersuaded by the reference to other statutes that directed compliance with prevailing wages with regards to construction projects. The Court noted that just because statutes authorizing construction projects require compliance with prevailing wages, it does not mean that prevailing wage laws only apply to construction projects. Finally, the Court seemingly took a policy stance stating that Defendant failed to explain why belt sorters were markedly different from laborers who were vulnerable and at risk for exploitation and to receive substandard wages.

The impact of Kaanaana is significant for staffing agencies. For one, the Court has shown that it will not restrain in seeking to uphold the policy purpose of prevailing wages—to protect workers from substandard wages—even if that means expanding the generally understood scope of prevailing wages. Two, staffing agencies must reexamine the wages they pay their workers assigned to perform work for any “irrigation, utility, reclamation, and improvement” governmental district. Three, it is unclear, and the Court gave no guidance, as to what other governmental districts fall within the definition of “other districts of this type.” As such, staffing agencies should review the type of work performed by any other governmental districts with whom they contract to provide workers and assess whether such work could fall within the work described in section 1720(a)(2).  

The Court’s holding is also on par with recent legislative action, namely, AB 1768 which went into effect on January 1, 2020, and amended Section 1720(a)(1) to expand the definition of “construction” to include work performed during the design, site assessment, feasibility studies and other preconstruction phases of construction regardless of whether further construction work is in fact conducted. Indeed, Justice Kruger’s concurring opinion, which chastised the Legislature for failing to clear up the definition of “public works,” calls upon the Legislature to revise the definition to reflect the current scope of prevailing wage laws and the protection that prevailing wages offers workers at this time. As we have seen in other contexts, it is quite possible that the Legislature will attempt to answer Justice Kruger’s call to action and may seek to propose revisions to clarify or even expand the reach of prevailing wages. 

For now, staffing agencies should review their current contracts with any governmental districts and assess the potential application of prevailing wages to the work being performed by their workers under such contracts. Similarly, prior to bidding on or entering into any contract to staff facilities of governmental districts, staffing agencies should consider whether they are contracting to pay workers the applicable legal wages due for the contracted work.

If you have any questions about this article or the Kaanaana decision, please contact Guillermo Tello (gtello@ClarkHill.com), Yesi Lagunas (ylagunas@clarkhill.com), or another member of Clark Hill’s Labor and Employment Practice Group.